No. 16-712

IN THE

Supreme Court of the United States _________________________

OIL STATES ENERGY SERVICES, LLC,

Petitioner, v.

GREENE’S ENERGY GROUP, LLC, ET AL.,

Respondents. _________________________

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT _________________________

BRIEF OF AMICUS CURIAE TAIWAN SEMI-CONDUCTOR MANUFACTURING CO., LTD.

IN SUPPORT OF RESPONDENTS _________________________

Michael Shen Willy Chang TSMC, LTD. 8 Li-Hsin Rd. Hsinchu, Taiwan Bas de Blank ORRICK, HERRINGTON &

SUTCLIFFE LLP 1000 Marsh Road Menlo Park, CA 94025

Mark S. Davies Counsel of Record

Katherine M. Kopp Jeremy Peterman Randall Smith ORRICK, HERRINGTON &

SUTCLIFFE LLP 1152 15th Street NW Washington, DC 10019 (202) 339-8400 mark.davies@orrick.com

Counsel for Amicus Curiae

i

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ..................................... ii 

INTEREST OF AMICUS CURIAE .......................... 1 

SUMMARY OF ARGUMENT ................................... 2 

ARGUMENT ............................................................. 3 

I.  NPEs Often Assert Worthless Patents Against Manufacturers’ Customers and Products. ............................................................. 3 

A.  Some worthless patents are an inevitable feature of any patent system. ........................................................... 4 

B.  Owners of worthless patents often sue manufacturers’ customers. ........................... 5 

II.  To Promote Progress, Congress Has Provided Manufacturers With An Effective Mechanism To Defend Against NPE Suits. .......................................................... 9 

A.  For many years, manufacturers could not defend their customers and their products from suits based on worthless patents. ........................................................ 10 

B.  IPRs provide manufacturers with a mechanism to defend their customers and products from suits based on worthless patents. ....................................... 16 

CONCLUSION ........................................................ 19 

ii

TABLE OF AUTHORITIES

Page(s)

Cases 

Adobe Sys. Inc. v. Kelora Sys. LLC, No. C 11-3938 CW, 2011 WL 6101545 (N.D. Cal. Dec. 7, 2011) ......................................... 14

Allied Mineral Prods., Inc. v. Osmi, Inc., 870 F.3d 1337 (Fed. Cir. 2017) .............................. 13

Autogenomics, Inc. v. Oxford Gene Tech. Ltd., 566 F.3d 1012 (Fed. Cir. 2009) .............................. 14

Benitec Australia, Ltd. v. Nucleonics, Inc., 495 F.3d 1340 (Fed. Cir. 2007) .............................. 13

Bilski v. Kappos, 561 U.S. 593 (2010) ................................................. 4

Bridgelux, Inc. v. Cree, Inc., No. C 06-6495 PJH, 2007 WL 2022024 (N.D. Cal. July 9, 2007) .......................... 12

Cisco Sys., Inc. v. Alberta Telecomms. Research Ctr., 538 F. App’x 894 (Fed. Cir. 2013) ......................... 11

Cocona, Inc. v. Sheex, Inc., 92 F. Supp. 3d 1032 (D. Colo. 2015) ...................... 12

Commil USA, LLC v. Cisco Sys., Inc., 135 S. Ct. 1920 (2015) ....................................... 2, 15

iii

Creative Compounds, LLC v. Starmark Labs., 651 F.3d 1303 (Fed. Cir. 2011) .............................. 11

Dorman Prods., Inc. v. Paccar, Inc., 201 F. Supp. 3d 663 (E.D. Pa. 2016) ..................... 15

Glenayre Elecs., Inc. v. Jackson, 443 F.3d 851 (Fed. Cir. 2006) .................................. 8

Innovative Therapies, Inc. v. Kinetic Concepts, Inc., 599 F.3d 1377 (Fed. Cir. 2010) .............................. 13

Integrated Glob. Concepts, Inc. v. j2 Glob., Inc., No. C-12-03434-RMW, 2013 WL 3297108 (N.D. Cal. June 28, 2013) ....................... 12

Kahn v. Gen. Motors Corp., 889 F.2d 1078 (Fed. Cir. 1989) ................................ 7

Kappos v. Hyatt, 566 U.S. 431 (2012) ................................................. 4

Katz v. Lear Siegler, Inc., 909 F.2d 1459 (Fed. Cir. 1990) ................................ 7

KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007) ................................................. 2

Lear, Inc. v. Adkins, 395 U.S. 653 (1969) ................................................. 4

Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009) ................................ 8

iv

Matthews Int’l Corp. v. Biosafe Eng’g, LLC, 695 F.3d 1322 (Fed. Cir. 2012) .............................. 12

Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270 (1941) ............................................... 10

MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) ............................................... 10

Microsoft Corp. v. DataTern, Inc., 755 F.3d 899 (Fed. Cir. 2014) .......................... 12, 13

Microsoft Corp. v. i4i Ltd. P’ship, 564 U.S. 91 (2011) ................................................... 4

Microsoft Corp. v. LBS Innovations LLC, No. 12-CV-0848 CCC JAD, 2012 WL 6028857 (D.N.J. Nov. 8, 2012) .............................. 13

MPHJ Tech. Invs., LLC v. Ricoh Americas Corp., 847 F.3d 1363 (Fed. Cir. 2017) .............................. 18

Ours Tech., Inc. v. Data Drive Thru, Inc., 645 F. Supp. 2d 830 (N.D. Cal. 2009) ................... 13

Pennoyer v. Neff, 95 U.S. 714 (1877) ................................................. 14

Pope Mfg. Co. v. Gormully, 144 U.S. 224 (1892) ................................................. 4

Proofpoint, Inc. v. InNova Patent Licensing, LLC, No. 5:11-CV-02288-LHK, 2011 WL 4915847 (N.D. Cal. Oct. 17, 2011) ......................... 12

v

SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 137 S. Ct. 954 (2017) ............................................... 9

Shuffle Tech Int’l, LLC v. Sci. Games Corp., No. 15 C 3702, 2015 WL 5934834 (N.D. Ill. Oct. 12, 2015) ................................................... 13

Spread Spectrum Screening LLC v. Eastman Kodak Co., 657 F.3d 1349 (Fed. Cir. 2011) ................................ 7

Stern v. Marshall, 564 U.S. 462 (2011) ................................................. 1

Tegic Commc’ns Corp. v. Bd. of Regents of Univ. of Tex. Sys., 458 F.3d 1335 (Fed. Cir. 2006) ................................ 7

Constitutional Provisions

U.S. Const. art. I, § 8, cl. 8 ............................... 2, 3, 16

Statutes  

28 U.S.C. § 2201(a) ................................................... 10

35 U.S.C. § 271 ........................................................... 5

35 U.S.C. § 271(b) ..................................................... 15

35 U.S.C. § 284 ........................................................... 7

35 U.S.C. § 303 ......................................................... 10

35 U.S.C. § 305 ......................................................... 10

vi

Other Authorities 

157 Cong. Rec. S1036 (daily ed. Mar. 1, 2011) (statement of Sen. Klobuchar) ................ 4, 16

157 Cong. Rec. S1326 (daily ed. Mar. 7, 2011) (statement of Sen. Sessions) ....................... 16

Brian J. Love, Inter Partes Review as a Shield for Technology Purchasers: A Response to Gaia Bernstein’s The Rise of the End-User in Patent Litigation, 56 B.C. L. Rev. 1075 (2015) ................................... 18

Colleen V. Chien, Patent Assertion and Startup Innovation, New Am. Found.: Open Tech. Inst. (Sept. 5, 2013), http://tinyurl.com/ycp2dlv7 ..................................... 8

Colleen V. Chien & Edward Reines, Why Technology Customers Are Being Sued En Masse For Patent Infringement And What Can Be Done, 49 Wake Forest L. Rev. 235 (2014) ......................... 7

Complaint, Godo Kaisha IP Bridge 1 v. Broadcom Ltd., No. 2:16-cv-00134-JRG-RSP (E.D. Tex. Feb. 14, 2016), Dkt. 1 ..................................................................... 17

Joint Motion to Dismiss, Godo Kaisha IP Bridge 1 v. Broadcom Ltd., No. 2:16-cv-00134-JRG-RSP (E.D. Tex. June 30, 2017), Dkt. 335 ....................................... 18

vii

Josh Landau, IPR Successes: A Bridge to Sovereign Patent Funds, Patent Progress (Oct. 9, 2017), http://tinyurl.com/ydew9j8g .................................. 14

Order Denying Motion to Transfer Venue, Godo Kaisha IP Bridge 1 v. Broadcom Ltd., No. 2:16-cv-00134-JRG-RSP (E.D. Tex. Feb. 27, 2017), Dkt. 188 .................................................................. 18

Samson Vermont, AIPLA Survey of Costs of Patent Litigation and Inter Partes Review (Jan. 30, 2017), http://tinyurl.com/ybnpne3 ...................................... 6

Scott Partridge & David Mika, Looking Upstream: Weighing Proposed Changes to Customer Stays in Patent Litigation, 4 Houston L. Rev. 81 (2014) ....................................................................... 6

TSMC, 2016 TSMC Annual Report: Technology Leadership (Mar. 17, 2017), http://tinyurl.com/y9gsvnr9.......................... 1

USPTO, Ex Parte Reexamination Filing Data—September 30, 2016, http://tinyurl.com/y78r4mvc .................................. 10

World Intellectual Property Organization, Re-examination Systems, http://tinyurl.com/y8brn54y/ .................. 16

1

INTEREST OF AMICUS CURIAE1

Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC) is the most advanced semiconductor manu-facturer in the world. Founded thirty years ago, sem-iconductors now made by TSMC include features that are 20 nanometers in size or as much as 5000 times thinner than the width of a human hair. To do this, TSMC employs thousands of engineers and spends billions of dollars a year to develop products with ever-decreasing size. And to maintain its industry lead, TSMC is expected to double its products’ compu-ting power every two years. Today, TSMC supplies to its customers the semiconductors that run many of the most popular electronic devices. TSMC believes in the value of patents that protect true innovation, and TSMC is now the company with the ninth most U.S. patents.2

Aware of the extraordinary volume of paper be-fore this Court, TSMC writes to make specific points drawn from its deep experience with the American pa-tent system. TSMC agrees with the views of Respond-ent set out on pages 29-39 of its brief. Patent rights are “public rights, derived from a ‘federal regulatory scheme.’” Resp. Br. at 30 (citing Stern v. Marshall,

1 The parties have consented to the filing of this amicus

brief. No counsel for a party authored the brief in whole or in part. No party, counsel for a party, or any person other than amici and their counsel made a monetary contribution intended to fund the preparation or submission of the brief.

2 See TSMC, 2016 TSMC Annual Report: Technology Lead-ership (Mar. 17, 2017), http://tinyurl.com/y9gsvnr9.

2

564 U.S. 462 (2011)). To minimize the amount of re-dundant argument, however, TSMC does not further directly address this question. TSMC instead offers this brief to aid the Court’s understanding of the sig-nificant problems invalid patents create for manufac-turers like TSMC and their customers. TSMC writes to explain why inter partes review (IPR) is critical for the patent system to promote the “Progress of Science and the useful Arts.”

SUMMARY OF ARGUMENT

A patent applicant is entitled to a patent only if the United States Patent & Trademark Office (Patent Office) determines that the applicant invented some-thing beyond “the results of ordinary innovation.” KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 427 (2007) (citing U.S. Const. art. I, § 8, cl. 8). But making that determination is no easy task, and hundreds of thou-sands of patent applications are filed each year. The inevitable result is that among the many issued pa-tents are patents that “stifle, rather than promote, the Progress of useful Arts.” Id.

“Some companies may use patents as a sword to go after defendants for money, even when their claims are frivolous.” Commil USA, LLC v. Cisco Sys., Inc., 135 S. Ct. 1920, 1930 (2015). Owners of worthless pa-tents, often non-practicing entities (NPEs), routinely sue manufacturers’ customers rather than directly sue manufacturers such as TSMC. NPEs do so to avoid challenges to the validity of the patent because an individual customer is less likely than a manufac-turer to pay the costs to litigate. NPEs also sue a man-ufacturer’s customers to inflate the damages

3

demands because customers incorporate a manufac-turer’s component into an end product with a higher price tag. And should an NPE decide to target a man-ufacturer for inducing the customer to infringe, an NPE is able to generate high damages claims by giv-ing notice of the patent and then waiting months or years to sue while the customer further commits its end product to the manufacturer’s component.

IPRs are often the only mechanism for a manufac-turer to protect its customers and products from the cloud of infringement. Patent owners can engage in strategic pleading to deprive manufacturers of access to Article III courts to challenge the asserted patent’s validity under the Declaratory Judgment Act. Thus, for manufacturers, this case is not about the choice between contesting patent validity in Article III courts or contesting patent validity in IPRs. Rather, at stake for manufacturers is any mechanism to con-test the validity of a worthless patent asserted against the manufacturers’ customers and manufac-turers’ products.

ARGUMENT

I. NPEs Often Assert Worthless Patents Against Manufacturers’ Customers and Products.

The framers empowered Congress to create a pa-tent system that “promote[s] the Progress of Science and useful Arts.” U.S. Const art. I, § 8, cl. 8. Today’s patent system “adjust[s] the tension, ever present in patent law, between stimulating innovation by pro-tecting inventors and impeding progress by granting

4

patents when not justified by the statutory design.” Bilski v. Kappos, 561 U.S. 593, 609 (2010). And for many years, companies, including TSMC, have sub-mitted patent applications and obtained patents pro-tecting inventions. But since at least the 1800s, this Court has also recognized that not all patents claim true innovations. “It is as important to the public that competition should not be repressed by worthless pa-tents, as that the patentee of a really valuable inven-tion should be protected in his monopoly.” Lear, Inc. v. Adkins, 395 U.S. 653, 663-64 (1969) (quoting Pope Mfg. Co. v. Gormully, 144 U.S. 224, 234 (1892)).

A. Some worthless patents are an inevitable feature of any patent system.

Given the prominent place of technology in to-day’s economy, the erroneous issuance of some pa-tents is unavoidable. As the Federal Respondent writes, “the patent examiner evaluating an applica-tion may be unaware of information that bears on whether the requirements for patentability are satis-fied.” Br. Federal Respondents at 3 (citing Kappos v. Hyatt, 566 U.S. 431, 437 (2012) and Microsoft Corp. v. i4i Ltd. P’ship, 564 U.S. 91, 108-112 (2011)). “[T]hird parties are often in the best position to challenge a patent application [and] [w]ithout the benefit of this outside expertise, an examiner might grant a patent for technology that simply isn’t a true invention.”3 Thus, “while patent examiners generally are highly skilled in both technology and patent law, they do nevertheless occasionally make mistakes and issue

3 157 Cong. Rec. S1036 (daily ed. Mar. 1, 2011) (statement of Sen. Klobuchar).

5

claims that should not have been issued.” Br. Amicus Curiae PTAB Bar Ass’n at 13; see also id. at 15 (“prob-lems are inherent in any examination system of pa-tents”).

The presence of improperly-issued patents com-plicates inventing for TSMC. Such a patent claims a monopoly on an idea that already existed. A TSMC inventor that comes across the patent may reasonably believe the patent to be no impediment to a new and useful semiconductor product. But until rendered in-valid, the patent can be asserted against TSMC’s products. TSMC is thus confronted with a dilemma when facing a patent that it believes invalid: It can either risk patent infringement suits against its prod-ucts or pay for a license it believes it does not need.

B. Owners of worthless patents often sue manufacturers’ customers.

A patent owner can typically sue anyone down the supply chain for infringement. 35 U.S.C. § 271 (grant-ing patent owner right to exclude others from making, using, selling, or offering to sell an invention). NPEs take great advantage of their ability to pick their de-fendant: NPEs often sue manufacturers’ customers rather than manufacturers. NPEs have found that customers are more lucrative targets. The reason is both a matter of a customer’s diminished incentive to resist settlement pressure and the prospect of greater damages.

Diminished Incentives to Contest A Worth-less Patent. When a manufacturer’s product is ac-cused of infringing a questionable patent, the

6

manufacturer has every incentive to challenge the as-serted patent’s validity. The infringement suit is in essence the plaintiff claiming that it invented the manufacturer’s product. And the manufacturer faces exposure for every product it sold to its customers and every product it may sell in the future. Until the man-ufacturer either settles or a court finds the asserted patent invalid or non-infringing, its product will re-main under a cloud of infringement and its business may be at risk. This gives manufacturers a strong in-centive to contest baseless patent claims with the in-dustry knowledge and expertise needed to do so.

For customers, the incentives often look different. See Scott Partridge & David Mika, Looking Up-stream: Weighing Proposed Changes to Customer Stays in Patent Litigation, 4 Houston L. Rev. 81, 84-86 (2014). Defending against a claim of infringement is expensive.4 And an infringement claim based on a supplied component will sometimes target only a small part of the customer’s business. The customer may also have the option of simply switching to a new product for less than it would cost to fight. Or they may believe the manufacturer will foot the bill for any settlement. The result is that the customer has a di-minished incentive to defend against the infringe-ment allegations and will typically have an incentive

4 According to the American Intellectual Property Law As-sociation, in cases where between $1 million and $25 million is at risk, a patent owner should expect to spend more than $2 mil-lion to litigate a patent through trial and appeal. In high stakes litigation the median cost is $5,000,000—which means half of such suits cost even more. Samson Vermont, AIPLA Survey of Costs of Patent Litigation and Inter Partes Review (Jan. 30, 2017), http://tinyurl.com/ybnpne3c.

7

to settle even if they believe they would ultimately prevail. See Colleen V. Chien & Edward Reines, Why Technology Customers Are Being Sued En Masse For Patent Infringement And What Can Be Done, 49 Wake Forest L. Rev. 235, 243 (2014).

Indeed, for this reason, the Federal Circuit even recognizes “that, in certain patent cases, ‘litigation against or brought by the manufacturer of infringing goods takes precedence over a suit by the patent owner against customers of the manufacturer.’” See Spread Spectrum Screening LLC v. Eastman Kodak Co., 657 F.3d 1349, 1357 (Fed. Cir. 2011) (quoting Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1464 (Fed. Cir. 1990)); see also Tegic Commc’ns Corp. v. Bd. of Regents of Univ. of Tex. Sys., 458 F.3d 1335, 1343 (Fed. Cir. 2006). This is because of “the manufac-turer’s presumed greater interest in defending its ac-tions against charges of patent infringement; and to guard against possibility of abuse.” Kahn v. Gen. Mo-tors Corp., 889 F.2d 1078, 1081 (Fed. Cir. 1989).

Inflated Claims of Damages. Plaintiffs target customers rather than manufacturers for a second reason: They can demand greater damages from the manufacturer’s customers than they can reasonably seek from the manufacturer even though the alleg-edly infringing component is identical in both cases. The reason is how patent damages are measured. Typically, a plaintiff that proves infringement is enti-tled to a “reasonable royalty” for its contribution. 35 U.S.C. § 284. The reasonable royalty is determined by a hypothetical negotiation that seeks to tease out what an infringer would have paid for a license. See,

8

e.g., Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324-25 (Fed. Cir. 2009).

But because the customer uses the accused prod-uct in a more lucrative consumer electronic, plaintiffs can persuade juries that the customer would have paid far more for a license than the manufacturer. See, e.g., Glenayre Elecs., Inc. v. Jackson, 443 F.3d 851, 861 (Fed. Cir. 2006) (plaintiff “succeeded” at “steer[ing] the jury away from the relatively low roy-alty base of $40 million to the relatively high royalty base of $250 million, which was based on cus-tomer use.”). For example, as one lawyer for a startup targeted by an NPE explained, the “patentee [did] not sue … [the manufacturers] because they … wanted the damages base to be the $400/500 price of a phone rather than the $25 price of a chip or the price (some-times zero) of the software.”5 The plaintiff can con-tend the customer would have paid more to license its patent than TSMC, notwithstanding that the alleg-edly infringing product is identical. And the customer may have a large profit margin that can help it absorb the costs of a settlement. That creates an incentive to sue the customer and not the manufacturer.

Although some NPEs may sue the customers early, others may increase settlement demands by waiting to file suit against a customer until a product becomes successful. “Once a business chooses to rely on a particular technology, it can become expensive to

5 Colleen V. Chien, Patent Assertion and Startup Innova-

tion, New Am. Found.: Open Tech. Inst. 13 (Sept. 5, 2013), http://tinyurl.com/ycp2dlv7.

9

switch, even if it would have been cheap to do so ear-lier.” SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 137 S. Ct. 954, 972 (2017) (Breyer, J., dissenting). This is particularly true for end prod-ucts made up of multiple components supplied by oth-ers, where each component is like the piece to a complex jigsaw puzzle. The NPE just waits until the customer has assembled the intricate puzzle and then strikes at a key piece. This dynamic gives “a patentee [a] considerable incentive to delay suit until the costs of switching—and accordingly the settlement value of a claim—are high.” Id.

* * *

By suing customers rather than manufacturers, NPEs decrease the risk to their patent from a validity challenge and increase the likelihood of a lucrative settlement. In the event the customer decides to fight, the patent owner can settle inexpensively with one customer and keep the strategy going with others. Furthermore, NPEs often benefit from delaying suit until the customer has committed to the manufac-turer’s product.

II. To Promote Progress, Congress Has Provided Manufacturers With An Effective Mechanism To Defend Against NPE Suits.

In 2011, Congress created inter partes review—a targeted administrative mechanism that enables the Patent Office to find, with the benefit of adversarial presentation, those worthless patents that stifle inno-vation. TSMC’s experience illustrates the effective-ness of Congress’s actions.

10

A. For many years, manufacturers could not defend their customers and their products from suits based on worthless patents.

For many years, the only avenue open to a manu-facturer seeking to defend its products from a strate-gic suit against its customers was to seek a declaratory judgment. See 28 U.S.C. § 2201(a).6 But that option often did not work. To have standing to bring a declaratory judgment action a manufacturer must show “a substantial controversy, between par-ties having adverse legal interests, of sufficient imme-diacy and reality to warrant the issuance of a declaratory judgment.” MedImmune, Inc. v. Genen-tech, Inc., 549 U.S. 118, 127 (2007) (quoting Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)). The lower courts have consistently held that injury from a patent owner suing a customer for using a manufacturer’s product is not enough.

The case law is replete with instances where pa-tent holders have brought infringement suits against

6 Although a manufacturer may also have requested an ex

parte reexamination by the Patent Office, 35 U.S.C. § 303, the manufacturer has no right to participate in an ex parte reexam-ination once the proceeding begins. Id. at § 305. Moreover, the proceeding is “conducted according to the procedures established for initial examination.” Id. Given the high volume of issued pa-tents and the difficulty of the patent examination process, supra 4-5, a process that effectively repeats a process that already is-sued a worthless patent may well just repeat the error. Moreo-ver, ex parte reexamination can take years to resolve validity. See USPTO, Ex Parte Reexamination Filing Data—September 30, 2016, http://tinyurl.com/y78r4mvc.

11

the customers of an upstream manufacturer and made clear that these suits were based on the custom-ers’ use of the manufacturer’s products, yet the man-ufacturer was deemed to lack declaratory judgment standing. In one case, a patent holder brought suit against several customers of Cisco, a manufacturer of components for telecommunications networks. Cisco Sys., Inc. v. Alberta Telecomms. Research Ctr., 538 F. App’x 894 (Fed. Cir. 2013). The patent holder “pro-vided claim charts to the defendants which tie[d] [its] infringement contentions to the … defendants’ use of Cisco products, identified by model number, and quote[d] Cisco’s product literature to describe the al-legedly infringing functionality made possible by those Cisco products.” Id. at 895. Yet the court con-cluded that, while it was “understandable that Cisco may have an interest in saving its customers from in-fringement contentions premised … on their use of Cisco products[,] … that interest is simply insufficient to give rise to a current, justiciable case or controversy upon which federal declaratory judgment may be predicated.” Id. at 898.

In other instances, even where a patent holder has explicitly threatened litigation against a manu-facturers’ customers, courts have found that the man-ufacturer lacked declaratory judgment standing. In one case, the manufacturer lacked standing even though the patent holder sent letters to its customers “alleging that [the product] would infringe” its patent. Creative Compounds, LLC v. Starmark Labs., 651

12

F.3d 1303, 1316 (Fed. Cir. 2011).7 In another, the manufacturer lacked standing despite the manufac-turer’s claims that a patent holder “launched a bad faith whispering campaign” in the relevant market-place “by making accusations and veiled threats to po-tential customers” and despite statements from the manufacturer’s customers that they were “reluctant to buy” the manufacturer’s products “because of the accusations made by” the patent holder. Matthews Int’l Corp. v. Biosafe Eng’g, LLC, 695 F.3d 1322, 1327 (Fed. Cir. 2012).

Indemnification is not a ready solution to secure standing either. As an initial matter, manufacturers should not be put to the choice of indemnification or being able to challenge infringement contentions lev-eled at their products. But even if a manufacturer is willing to indemnify, that is not always enough. Courts have held that an indemnification demand from a customer alone is not sufficient. See Microsoft Corp. v. DataTern, Inc., 755 F.3d 899, 904 (Fed. Cir. 2014); Proofpoint, Inc. v. InNova Patent Licensing, LLC, No. 5:11-CV-02288-LHK, 2011 WL 4915847, at

7 See also Cocona, Inc. v. Sheex, Inc., 92 F. Supp. 3d 1032,

1041 (D. Colo. 2015) (no standing to seek declaratory relief based on “generalized concern about potential lawsuits against its cus-tomers and licensees”); Integrated Glob. Concepts, Inc. v. j2 Glob., Inc., No. C-12-03434-RMW, 2013 WL 3297108, at *4 (N.D. Cal. June 28, 2013) (no standing to seek declaratory judgment standard even though patent holder sent cease and desist letter to supplier’s customers); Bridgelux, Inc. v. Cree, Inc., No. C 06-6495 PJH, 2007 WL 2022024, at *9 (N.D. Cal. July 9, 2007) (no standing to seek declaratory judgment despite claims that pa-tent holder threatened litigation against plaintiff’s customers).

13

*5 (N.D. Cal. Oct. 17, 2011). And even when the man-ufacturer accedes to such indemnification demands, courts have sometimes found that interest insuffi-cient to convey declaratory judgment standing. See Ours Tech., Inc. v. Data Drive Thru, Inc., 645 F. Supp. 2d 830, 840 (N.D. Cal. 2009); see also Shuffle Tech Int’l, LLC v. Sci. Games Corp., No. 15 C 3702, 2015 WL 5934834, at *8 (N.D. Ill. Oct. 12, 2015) (“Volun-tary involvement in the indemnified party’s litigation does not give the indemnitor the type of adverse legal interest … necessary to satisfy MedImmune.”).

The upshot is that patent holders are empowered to act strategically to defeat manufacturers’ standing while continuing to threaten and actually initiate in-fringement suits against the manufacturer’s custom-ers. In case after case, courts have concluded that a patent holder could thwart a manufacturer’s standing simply by avoiding threatening the manufacturer with an infringement suit. Allied Mineral Prods., Inc. v. Osmi, Inc., 870 F.3d 1337, 1339-40 (Fed. Cir. 2017); Microsoft Corp., 755 F.3d at 905 (no standing where claim charts mentioned Microsoft’s product but did not accuse Microsoft of infringement); see also Benitec Australia, Ltd. v. Nucleonics, Inc., 495 F.3d 1340, 1343, 1348 (Fed. Cir. 2007) (dismissing declaratory judgment action even though plaintiff was motivated to “prevent the district court from declaring the … pa-tent invalid”).8

8 See also Innovative Therapies, Inc. v. Kinetic Concepts,

Inc., 599 F.3d 1377, 1382 (Fed. Cir. 2010); Microsoft Corp. v. LBS Innovations LLC, No. 12-CV-0848 CCC JAD, 2012 WL 6028857,

14

The problem is compounded by the rise of foreign NPEs and sovereign patent funds. Josh Landau, IPR Successes: A Bridge to Sovereign Patent Funds, Pa-tent Progress (Oct. 9, 2017), http://ti-nyurl.com/ydew9j8g. A foreign NPE can always consent to personal jurisdiction by filing suit in United States courts. See Pennoyer v. Neff, 95 U.S. 714 (1877). But these entities are otherwise generally not subject to personal jurisdiction until they file suit in the United States. See Autogenomics, Inc. v. Oxford Gene Tech. Ltd., 566 F.3d 1012, 1021 (Fed. Cir. 2009) (holding that foreign patent holder was not subject to personal jurisdiction in a declaratory judgment ac-tion). So foreign NPEs can and do threaten manufac-turers and their customers with infringement litigation without putting their patents at risk by ac-tually filing an infringement suit. Thus, even if a manufacturer like TSMC could establish standing, it might still be unable to file a declaratory judgment action against a foreign NPE because of the court’s lack of personal jurisdiction.

And the NPE problem for manufacturers does not necessarily end with suits against its customers. It

at *1 (D.N.J. Nov. 8, 2012) (supplier lacked declaratory judgment standing because, although patent holder sued several of its cus-tomers for infringement, patent holder did not explicitly allege infringement “based upon their use of any product or service pro-vided by [supplier]”); Adobe Sys. Inc. v. Kelora Sys. LLC, No. C 11-3938 CW, 2011 WL 6101545, at *4 (N.D. Cal. Dec. 7, 2011) (patent holder defeated declaratory judgment standing because, although it sent letters to supplier’s customers alleging infringe-ment, those letters did not explicitly “state that [the supplier’s] products were the basis for the enforcement actions against those third parties”).

15

also applies when an NPE decides to sue the manu-facturer directly for induced infringement. The NPE can give notice of the patent to the manufacturer thereby laying the foundation for an induced infringe-ment claim. See 35 U.S.C. § 271(b). But by avoiding an immediate litigation threat, the NPE can avoid triggering declaratory judgment standing and giving the manufacturer the option to challenge the patent’s validity before damages begin to accrue. Supra 10-12. Because a good faith belief that the patent is invalid is not a defense to induced infringement, see Commil, 135 S. Ct. 1920, the prospect of a worthless patent suit puts the manufacturer in an impossible situation. A manufacturer can only watch potential damages ac-crue for induced infringement and has no forum to demonstrate that the patent is invalid.9

In sum, for the entity with the greatest incentive to properly address invalidity—manufacturers—the worthless patent problem became particularly vexing. NPEs often asserted worthless patents against a manufacturer’s customers in a way that precluded the manufacturer from ever being able to contest the pa-tent’s validity. And, even if a manufacturer suspected an NPE would someday file a direct suit against it for induced infringement, the manufacturer would have no choice but to let possible damages accrue.

9 Still worse, waiting for suit has become even more of a

problem for manufacturers given that NPEs have argued that a good faith belief of invalidity is not even a defense to willful in-fringement. See Dorman Prods., Inc. v. Paccar, Inc., 201 F. Supp. 3d 663 (E.D. Pa. 2016).

16

B. IPRs provide manufacturers with a mechanism to defend their customers and products from suits based on worthless patents.

In 2011, Congress recognized that “low-quality patents clog the system and hinder true innovation.”10 Congress fulfilled its mandate to “promote the Pro-gress of Science and useful Arts” by creating inter partes review—a post-grant review mechanism tar-geted to those questionable patents that become prob-lematic. U.S. Const. art. I, § 8, cl. 8. Similar reexamination mechanisms are a feature of patent systems across the globe. See World Intellectual Prop-erty Organization, Re-examination Systems, http://ti-nyurl.com/y8brn54y/.

Inter partes review enables innovators, like TSMC, who routinely face threats based on worthless patents, to ask the Patent Office to double check the patent’s validity in an expedited and economical pro-ceeding. In that way it “allow[s] invalid patents that were mistakenly issued by the [Patent Office] to be fixed early in their life, before they disrupt an entire industry or result in expensive litigation.” 157 Cong. Rec. S1326 (daily ed. Mar. 7, 2011) (statement of Sen. Sessions).

IPRs provide the solution to each of the problems identified above. IPRs enable a manufacturer con-fronted with a worthless patent to defend its product and its customers by making the case against validity

10 157 Cong. Rec. S1036 (daily ed. Mar. 1, 2011) (statement

of Sen. Klobuchar).

17

that the Patent Office may not have heard when it in-itially examined the patent application. IPRs let man-ufacturers resolve validity early in a design process, which makes it possible to take a license to a ques-tionable patent that turns out to be valid without the distorting effect of a locked-in customer. And IPRs let manufacturers avoid the risk of induced infringement if they guess wrong about a patent being worthless by getting a definitive ruling on the patent’s validity be-fore they engage in allegedly infringing activities.

To illustrate, TSMC faces the problem of NPEs targeting its customers. IPRs made it possible for TSMC to challenge the patents and resolve the dis-putes. TSMC has sought 50 inter partes reviews against patents that have been asserted against its technology, mostly in suits against its customers. And TSMC’s success rate has been notable—excluding cases that remain pending, patent owners simply sur-rendered their patent in 11% of cases. In another 75%, the PTAB ultimately held all challenged claims un-patentable, or TSMC favorably settled. Without IPRs, the owners of those patents would have been able to engage TSMC’s customers in protracted litigation, or negotiate coercive settlements involving exorbitant li-censing demands, based on patents that never should have been issued in the first place.

TSMC’s recent IPR proceedings against Godo Kai-sha IP Bridge are exemplary. In early 2016, IP Bridge sued Broadcom in the Eastern District of Texas for in-fringement of U.S. Patent Nos. 6,538,324; 6,197,696; 7,126,174; 8,354,726; RE43,729; and RE41,980. Com-plaint, Godo Kaisha IP Bridge 1 v. Broadcom Ltd., No. 2:16-cv-00134-JRG-RSP (E.D. Tex. Feb. 14, 2016),

18

Dkt. 1. But Broadcom does not manufacture any of the accused devices. Order Denying Motion to Trans-fer Venue at 5, Broadcom, Dkt. 188. Instead, it pur-chases them from third-party foundries, including TSMC. Id. TSMC petitioned for inter partes review of 5 of the 6 patents at issue in Broadcom. The Patent Office granted TSMC’s petitions on 3 of those patents. See IPR2016-01246, 01247 (’174 patent); IPR2016-01249, -01264 (’324 patent); IPR2016-01376, -01377, -01378, -01379 (’696 patent). Thereafter, the Broad-com parties settled and jointly moved to dismiss the lawsuit pending in the Eastern District of Texas. Joint Motion to Dismiss, Broadcom (June 30, 2017), Dkt. 335.

So too, many other manufacturers rely on the IPR process to defend products and customers from NPE suits. Major manufacturers including Cisco, IBM, Nintendo, and Oracle have used IPRs to protect their customers from infringements suits. Brian J. Love, Inter Partes Review as a Shield for Technology Pur-chasers: A Response to Gaia Bernstein’s The Rise of the End-User in Patent Litigation, 56 B.C. L. Rev. 1075, 1090-91 (2015). And IPRs enabled HP, Lexmark, and Xerox to defeat a worthless patent that the NPE MPHJ had been asserting against every business it could find that used a dual printer scan-ner. See MPHJ Tech. Invs., LLC v. Ricoh Americas Corp., 847 F.3d 1363 (Fed. Cir. 2017) (affirming PTAB).

* * *

IPRs give manufacturers the security from worth-less patents they need to innovate, to protect their

19

customers from coercive settlements, and to maintain confidence in the patent system. With IPRs, manufac-turers can protect their products from strategic law-suits based on worthless patents. They can combat foreign NPEs who wield US patents while avoiding the jurisdiction of US courts. They can challenge va-lidity early and resolve disputes before their custom-ers are locked into a product and vulnerable to settlement pressure. And they solve the dilemma be-tween paying to license a patent that never should have issued or risking infringement litigation by providing a quick mechanism for resolving validity.

CONCLUSION

To assure a patent system that promotes Progress, this Court should hold that inter partes review is constitutional.

Respectfully submitted,

Michael Shen Willy Chang TSMC, LTD. 8 Li-Hsin Rd. Hsinchu, Taiwan Bas de Blank ORRICK, HERRINGTON &

SUTCLIFFE LLP 1000 Marsh Road Menlo Park, CA 94025

Mark S. Davies Counsel of Record

Katherine M. Kopp Jeremy Peterman Randall Smith ORRICK, HERRINGTON &

SUTCLIFFE LLP 1152 15th Street NW Washington, DC 10019 (202) 339-8400 mark.davies@orrick.com

October 30, 2017